What Happened to Risk Management During the 2008-09 Financial Crisis?
When dealing with market risk under the Basel II Accord, variation pays in the form of lower capital requirements and higher profits. Typically, GARCH type models are chosen to forecast Value-at-Risk (VaR) using a single risk model. In this paper we illustrate two useful variations to the standard m...
| Autores: | , , |
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| Tipo de recurso: | informe técnico |
| Fecha de publicación: | 2009 |
| País: | España |
| Institución: | Universidad Complutense de Madrid (UCM) |
| Repositorio: | Docta Complutense |
| Idioma: | inglés |
| OAI Identifier: | oai:docta.ucm.es:20.500.14352/56702 |
| Acceso en línea: | https://hdl.handle.net/20.500.14352/56702 |
| Access Level: | acceso abierto |
| Palabra clave: | G32 G11 G17 C53 C22 Risk management Violations Aggressive risk strategy Conservative risk strategy Value-at-risk forecasts. Finanzas Crisis económicas 5307.06 Fluctuaciones Económicas |
| Sumario: | When dealing with market risk under the Basel II Accord, variation pays in the form of lower capital requirements and higher profits. Typically, GARCH type models are chosen to forecast Value-at-Risk (VaR) using a single risk model. In this paper we illustrate two useful variations to the standard mechanism for choosing forecasts, namely: (i) combining different forecast models for each period, such as a daily model that forecasts the supremum or infinum value for the VaR; (ii) alternatively, select a single model to forecast VaR, and then modify the daily forecast, depending on the recent history of violations under the Basel II Accord. We illustrate these points using the Standard and Poor’s 500 Composite Index. In many cases we find significant decreases in the capital requirements, while incurring a number of violations that stays within the Basel II Accord limits. |
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